Foreign Relations of the United States: Diplomatic Papers, Conferences at Malta and Yalta, 1945

Executive Secretariat Files

Briefing Book Paper

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Economic Policies Toward Germany

Summary

1. Our eventual objectives with respect to economic treatment of Germany should be (1) abolition of German self-sufficiency, and (2) elimination of the instruments for German economic aggression.

For a prolonged period of control and surveillance, however, economic policies with respect to Germany will have to be largely based upon other objectives, namely, (1) reduction of Germany’s economic war potential, and (2) assisting the economic reconstruction and development of the victorious countries.

2. The following policies recommended for adoption in discussion with British and Russians:

a. We should advocate allied acceptance of large responsibilities for guidance and reorientation of German economic life, including prevention of an unmanageably chaotic economic situation in the initial period after defeat.

b. Economic disarmament should include prohibition of the manufacture of land and naval armament and all types of aircraft; destruction of specialized facilities for their manufacture; establishment of controls to detect any forms of surreptitious preparation for war.

c. Consideration should be given to selective prohibitions upon the manufacture of key industrial items and of broader restraints on exports within the field of metals, metal products and chemicals.

d. During the early post-defeat period, the occupation authorities should take no steps to provide a higher living standard than is required for prevention of disease and disorder. Agreement should be sought on definition of this minimum and the measures to be taken, if necessary, to assure such a minimum.

e. We should favor conversion of remainder of German industry to peacetime production, particularly reparation goods for rehabilitation of European countries.

f. Payment for such current imports as are allowed by control authorities should be a first charge on German exports.

g. We favor full restitution of identifiable looted property.

h. We advocate establishment of machinery to assure inter-zonal essential goods.

i. We should seek agreement with Britain and Russia regarding policies for control of large industrial firms and elimination of active Nazis from influential positions in industry and finance.

Economic Policies Toward Germany

1. Need for Multilateral Determination of Policies

It is essential, in the economic as in other fields, that policies with respect to Germany be directed toward the central aim of keeping her disarmed through an effective international security organization. A substantial measure of agreement must be obtained in advance on economic policies toward Germany, and such policies must be so framed as to minimize the danger of new European rivalries from this source.

2. Policy Recommendations

In the Department’s view, our eventual objectives with respect to economic treatment of Germany should be (1) abolition of German self-sufficiency, and (2) elimination of the instruments for German economic aggression. These two objectives conform to the general economic foreign policy of the United States. More important, however, it is only through the kind of orientation of the German economy which is envisaged in these objectives that the basis for international security organization can be permanently assured.

These two objectives are closely related. Abolition of self-sufficiency requires the removal of all protection and subsidies to high-cost domestic production. Elimination of the instruments for German economic aggression requires the prohibition of all discriminatory trade controls, clearing agreements and international cartel arrangements.

The eventual objectives imply the assimilation—on a basis of equality—of a reformed, peaceful and economically non-aggressive Germany into a liberal system of world trade. During the period of military government, and over a control period of much longer duration, economic policies with respect to Germany will have to be largely based upon other objectives, namely, (1) reduction of Germany’s economic war potential, and (2) assisting the economic reconstruction and development of the victorious countries. Although these latter objectives must be over-riding, it is important that development of the German economy should not be so drastically restricted as to prevent the maintenance of a basic livelihood for the German people.

It is recommended that in discussion with the British and Russians we should adopt the policies given below as a basis for agreed action during the period of Allied control.

a) We should go along with the British and Russians in accepting large responsibilities for the guidance and reorientation of German economic life. It is altogether unlikely that a “hands off” policy would be accepted and adhered to by all major powers. Consequently, we must be prepared to take all possible steps in the initial phases of occupation to prevent development of a chaotically unmanageable economic situation, since this is a prerequisite to the exercise of effective economic control.

b) Economic disarmament should include prohibition of the manufacture of land and naval armament and all types of aircraft; destruction of specialized facilities used for the manufacture of these items; and establishment of permanent or semi-permanent controls to detect surreptitious preparation for rearmament, research on new weapons and stockpiling of key materials.

c) In addition, consideration should be given to selective prohibitions during the control period upon the manufacture of a few key industrial items, such as synthetic gasoline, synthetic rubber and certain types of machine tools and precision apparatus, and general prohibitions or restrictions on certain categories of German exports, particularly in the field of metals, metal products and chemicals. Sweeping measures of economic impairment are unnecessary if effective security organization is maintained, and are unenforceable in the absence of such security organization. However, the heavy industry sector of the German economy could be substantially contracted during a control period in ways which will aid the recovery and industrial development of other European countries without crippling Germany’s capacity to meet the basic needs of her population. Within a broad range, therefore, the problem is largely one of judging what measures will receive the support and contribute to the solidarity of the victors.

d) With respect to treatment of the German population, no steps should be taken by the occupation authorities for the purpose of providing a higher standard of living than is required for the prevention of disease and disorder. Agreement should be sought on a uniform quantitative definition of this standard and on the measures which the victorious powers might be prepared to take if necessary to assure such a minimum. This agreed minimum should not be raised until it is agreed that political tendencies within Germany justify some relaxation; the needs of liberated countries should, in any event, receive priority.

e) We should favor the conversion of the remainder of German industry to peacetime production, including particularly the production of reparation goods required to effect an early contribution to the rehabilitation of European countries. The reparation program should be of short duration, and should consist predominantly of payments in kind, with, perhaps, some labor services. Its size must depend upon the scope of the measures undertaken under (c) above. Extensive restrictions on heavy industrial exports imply a comparatively small reparation program, with emphasis on transfer of existing German capital equipment rather than of current German output.

f) Payment for such current imports as the control authorities allow to Germany, and other similar current expenses should become a first charge on German exports, ranking above reparation payments. Unless this principle is accepted, we run the danger of being called upon to pay for Germany’s imports while other countries are extracting reparation payments from Germany.

g) We should favor full restitution of identifiable looted property. Restitution should be handled at an inter-governmental level and should be returned to the government having jurisdiction over the place from which the property was looted.

h) We should advocate the establishment of machinery to assure inter-zonal movement of foodstuffs, industrial materials and finished goods, in order to limit import requirements, foster production for reparation, and prevent large inter-zonal disparities in diet and employment.

i) We should attempt to reach agreement with Britain and Russia regarding policies for the control of large industrial firms and the elimination of active Nazis from positions of influence. We should advocate a policy more drastic than the British now favor, but less drastic than Russia might be inclined to apply.